Banking on the Firm Objective

Abstract

In the U.S., credit union lending grew by 15 percentage points more relative to commercial bank lending after the Great Recession. Comparing institutions that faced similar borrowers within narrowly-defined local credit markets and similar crisis exposures shows the effect is supply-driven. Balance sheet mechanisms, loan pricing, informational advantages, tax benefits, and regulation do not explain results. Rather, higher lending was sustained by lower profit margins. Results suggest member-oriented firm objectives that prioritize the provision of financial services led the $1.4 trillion dollar credit union industry to lend more relative to profit-maximizing banks.

Keywords: Financial intermediation, Credit unions, Household finance

JEL Classification: D22, G01, G21, L21, L33, P13